Drug War Capitalism
Page 13
The stakes are high when it comes to Mexico’s education system, and the US corporate sector in particular has a lot riding on innovation and education in Mexico. “With Mexico able to provide US companies with young, skilled and cheap labor, and with the US able to play a potentially crucial role in the transfer of technology and know-how to its southern neighbor, there is clearly plenty of room for the two administrations to push ahead with further economic integration,” according to a recent article in the Financial Times. General Electric has an important center for research and design in Querétaro, which is fast becoming the country’s most important aerospace cluster. Engineers, 115,000 of whom graduate in Mexico each year, are particularly sought after, as they can be hired in Mexico for less than $1,000 a month. This is a crucial element in Mexico’s ability to attract foreign direct investment in advanced manufacturing, like the automobile and airplane industries. According to data from Mexico’s Secretary of the Economy, the number of aerospace companies in Mexico rose from 61 to 249 between 2005 and 2011, and 85 percent of aerospace exports are to the United States. Aerospace exports more than doubled to $4.3 billion over the same time period.[52] By 2011, the automotive industry represented 6 percent of FDI in Mexico and 23 percent of Mexico’s exports. In a speech given the same day Enrique Peña Nieto assumed his role as president of Mexico, the US ambassador to Mexico had this to say: “Increasing competitiveness has enabled Mexico to take a larger share of U.S. imports—about 13 percent this year. This trend is being driven by the rising cost of labor in China and the impact of high-energy prices on transportation. There are compelling reasons to believe that it is not just a short-term phenomenon. While Mexico has been the second-largest destination of U.S. exports for some time, some economists now predict that Mexico will overtake China to become the largest source of imports into the U.S. by 2018.”[53]
There has been pressure from international finance institutions to change the education system in Mexico; in a December 2012 press release announcing the renewal of a $73 billion credit line for Mexico, the IMF called for reforms to the education system, among other things.[54] Peña Nieto has already earned the admiration of the International Monetary Fund, whose leaders said they were “very impressed with President Pena Nieto’s structural reform agenda.”[55]
The strategy, at least according to economic elites, is working. On May 8, 2013, Mexico’s Finance Ministry (SHCP) presented to Congress a 927-page financial reform, consisting of thirteen decrees and amending thirty-four federal laws. Changes to the financial system are necessary not only to encourage foreign direct investment, but also to allow for the beginnings of shifting the tax base away from state-run petroleum company Pemex, which in turn was part of clearing the path to privatization. The same day the reform was published, Fitch Ratings raised Mexico’s credit rating to BBB+, citing “greater than anticipated commitment of the new administration and Congress to pass structural reforms.”[56] Finance Minister Luis Videgaray explained that the reform aims to increase competition in the banking sector and create incentives for lending.[57] Videgaray twice pointed to Chile, long the Latin American poster child of neoliberalism, as a model for Mexico’s financial system. “Regardless of the reforms, the performance of the Mexican economy over the last three decades has not been satisfactory,” read a report released prior to the reforms by the Mexican Central Bank.[58] In a March 2012 presentation, a Bank of Mexico representative correctly said that the pending reform agenda for the country’s central bank would improve the ease with which companies can do business in Mexico, remove “legal obstacles,” prevent labor flexibility, “strengthen the rule of law,” and consolidate macroeconomic policies.[59] “A poor track record of paying back loans, limited consequences for non-payment and a challenging legal environment for collections also dull lending in Mexico,” reported the Wall Street Journal,[60] so among the key objectives of the reform bill, is “improving trial procedures seeking faster resolution of controversies and granting enhanced rights to lenders through the courts, which are likely to expedite collections.”[61]
The financial reform, far from extending credit to poor and rural Mexicans and farmers who own land collectively (who do not have fee simple title), encourages the extension of credit in the form of credit cards. It creates the legal framework for the government to facilitate repossession of property belonging to debtors, something not previously contemplated in Mexico. Citibank and Banco Bilbao Vizcaya Argentaria are the biggest players, and HSBC, Santander, and Banorte round off the banks that essentially control the sector in Mexico. Experts say the financial reforms introduced on May 8, 2013, as part of the Pact for Mexico will primarily benefit these big banks. “The financialisation will take place through an increased penetration in small and medium sized communities, including poor and rural areas, that could finally mean an even deeper process of indebtedness of a good part of the population of Mexico,” said Dr. Luis Ignacio Román Morales, a professor and researcher in the department of Economics, Administration, and Finances at the Western Institute of Technology and Higher Education (ITESO) in Guadalajara, Mexico. “For the banks and financial institutions in general, it will become much easier to collect from the debtor. That’s very serious on a number of levels.”[62]
Ejidos are also under threat from the financial reform.[63] The system of ejidos is similar to the calpulli system of the Aztecs’ rule of Mexico, in which part of the lands was farmed by single families and other parts were used collectively. Ejido land was formerly only collectively owned by groups of farmers and passed on through the generations. Since pre-NAFTA reforms in 1992, parceled lots of ejido land can be converted to fee simple land. Under the 2013 financial reform, these lands could be collected for debts in the countryside, further devastating the rural land base. “In other words, we could go back to having banks as major land owners,” said Román Morales. For the first time, banks could also seize goods and real estate for non-payment, as well as take over small businesses.
Isabel Cruz Hernández, director of Mexican Association of Credit Unions in the Social Sector (AMUCSS) and president of the Latin American and Caribbean Forum on Rural Finances, points out the financial reform will not assist the millions of Mexican farmers who have resisted converting their lands to fee simple title. “Those who receive credit are those who have material guarantees, but 80 percent of our farmers have social property, which is to say, they’re part of ejidos and they can’t use their land as collateral for a loan—that is forbidden by the constitution,” she told me. “This reform will never benefit [farmers with less than five hectares or using ejidal land], never ever, and there is no movement within the financial reform to ensure that rural and agricultural credit can be activated for food production.”
The IMF loan renewal granted for Mexico in late 2012 noted “a broad structural reform agenda would be needed to unleash Mexico’s growth potential.” Mexico’s finance minister has admitted that the financial reform is necessary to other reforms pushed ahead in Mexico by the Pact for Mexico, which was supported by all of the major political parties.[64] “What some countries are doing, and this is the case of Mexico, we are trying to push a structural reform agenda that differentiates our economy from other economies in the world,” said Mexico’s vice finance minister, Fernando Aportela Rodríguez.[65]
As if to confirm Washington’s glee at Peña Nieto’s reforms, in February 2014 Time magazine featured him on the cover. In the photo, Peña Nieto’s head is slanted slightly upwards; he looks smug, confident, and handsome. Across his chest, bold white letters scream “Saving Mexico.” Below them: “How Enrique Peña Nieto’s sweeping reforms have changed the narrative in his narco-stained nation.” Critics pointed out that the Time piece read like a paid advertisement. Journalist Daniel Hernández wrote, “Weirdly, though, I don’t know of anyone who is calling this ‘Mexico’s Moment,’ other than people who stand to directly benefit from the construction of an impression of an economic boom in Mexico, a boom which actua
lly has not manifested, and has certainly not ‘trickled down’ to the average Mexican.”[66]
The Time cover showed the new heights the US media would go to put a positive spin on Mexico. Beginning in 2012 and accelerating with the return of the PRI, there was a public relations push to rebrand the country as an economic Aztec Tiger undergoing a new Mexican Miracle. This kind of reporting focuses on dubious assertions that Mexico has an expanding middle class, and ignores ongoing state and paramilitary violence. According to a 2012 position piece by Vianovo, a branding and PR company, to change Mexico’s brand, a good story “should highlight that Mexico’s stable GDP growth and burgeoning middle class represent a true economic miracle in spite of these challenges. It should emphasize that the violence is contained within certain geographies, and that most of the country isn’t affected. You wouldn’t postpone a trip to New York City because of violence in St. Louis, right?”[67]
“In India, people ask you about China, and, in China, people ask you about India: Which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico,” wrote Thomas Friedman in the New York Times.[68] Friedman, a journalist and columnist known for his strong neoliberal position, went on to extol Mexico’s competitiveness and suggest the United States should divert its war spending in Afghanistan to Mexico. “Better integration of Mexico’s manufacturing and innovation prowess into America’s is a win-win. It makes U.S. companies more profitable and competitive, so they can expand at home and abroad, and it gives Mexicans a reason to stay home and reduces violence. We do $1.5 billion a day in trade with Mexico, and have been spending $300 million a day in Afghanistan. Not smart.”
Extractives
Without a drug war, Mexico would have continued to implement neoliberal reforms, but there is little doubt that the fear, distraction, and terror created by the war, as well as the special funding provided through it, helped speed up the reform process. It also shifted the balance of power, as many Mexicans, disgusted by the perception that the drug war was the PAN’s doing, went back to voting PRI, whose election shifted public relations discourse—the economy became the central issue and talk of security challenges and the drug war were kept off the agenda. “It is a mistake to limit our bilateral relationship to drugs and security concerns,” wrote Enrique Peña Nieto in a Washington Post editorial the month before he assumed office.[69] “In NAFTA we have a solid foundation to further integrate our economies through greater investments in finance, infrastructure, manufacturing and energy. Together, we must build a more competitive and productive region.” On Obama’s first visit to Mexico during Peña Nieto’s term, the New York Times reported that the presidents would focus on “competiveness [sic], education and innovation, along with border infrastructure, commerce, migration and citizen security among other subjects of shared interest.”[70] In Mexico City, Obama pumped the immigration reform that was about to go before the Senate, where the Immigration Reform Bill was transformed into an effort that would see the United States spend another $46 billion on militarizing the US-Mexico border.[71] It has since stalled and appears unlikely to be adopted in 2014.
Today, governments prefer the term “competitiveness” when talking about privatization and regulatory reforms designed to benefit the corporate sector. Previously, competitiveness was known as austerity, a term that has fallen out of favor among the economic elite due to the growing awareness of the harsh consequences austerity has on the public.[72]
Pemex, the state-owned oil company, was founded in 1938 when President Lazaro Cárdenas announced that the oil industry in Mexico, until then largely controlled by US companies, would be expropriated. The company is now the crown jewel of the privatization effort.[73] Many prominent Mexicans, including Peña Nieto, advocated its privatization,[74] and some, like the head of the Mexican Stock Exchange, have proposed using as their model Colombia’s oil sector reform.[75] According to the Financial Times, “An opening of Mexico’s highly protected oil sector, which is dominated by state behemoth Pemex, could provide untold opportunities for US oil companies as well as the sort of technology-transfer Mexico desperately needs.”[76] Much of 2013 was dedicated to preparing the political ground for the constitutional reforms required to open the oil sector to private investment. In a 2013 talk at a Council of the Americas event, Emilio Lozoya, head of Pemex, suggested that foreign companies will be allowed to begin extracting shale oil and shale gas in Mexico once new legislation is adopted. “Pemex is not making as many deals as it could, because like any other company it has a limited capacity for investment. Regardless of this, legislation does not permit other players to develop what Pemex leaves on the table because of a lack of investment capacity. Not only are the hydrocarbons not extracted and cheaper energy not generated, neither is the employment generated. Thus, exploring the possibility of more private sector participation would benefit the country, and this is part of the energy reform that President Enrique Peña will launch this year,” said Lozoya.
An initial energy reform passed by Calderón in 2008 didn’t modify the constitution but it allowed for an increase in service contacts between Pemex and private companies. Lozoya, whose father was energy secretary under former Mexican president Salinas, underscored that Peña Nieto is not in favor of outright privatization, but he hinted that opening up Pemex to increased Mexican investment would be a positive step forward. Until reforms in December 2013, the Mexican Constitution stipulated that hydrocarbons are the patrimony of all Mexicans, which means foreign corporations operated on fixed contracts instead of earning based on the amount of oil extracted.
Following the December 2013 constitutional changes, limitations on foreign participation in Mexico were lifted. Prior to the energy reform, Mexico had one of the world’s most closed oil sectors—more so than even Venezuela’s, which was partially nationalized under Hugo Chávez. “There’s no comparison in Latin America; the only regime that continues to be markedly closed is Kuwait, and possibly North Korea,” said Dr. Miriam Grunstein, who teaches at the Centre for Economic Research and Teaching (CIDE) in Mexico City. “Chávez’s Venezuela was more open than Pemex was up until two months ago,” she said as we spoke on a warm Mexico City afternoon in late January, 2014. To further open up Mexico’s extensive oil and gas fields to foreign companies required constitutional changes to Articles 25, 26, and 27, which would allow companies other than Pemex to draw their proceeds directly from the oil or gas removed from the ground. These reforms, passed in December 2013, were justified on the grounds of job creation (there were promises of up to 2.5 million new jobs in Mexico by 2025 if the reform was passed),[77] competitiveness, and the promise of providing cheaper gas and electricity to Mexicans.
Grunstein described the results of the Energy Reform as surprising, and said that oil-industry experts didn’t think that such a radical reform would be possible in Mexico. “This reform, without a doubt, changes Mexico’s energy sector 180 degrees. For the first time, we will have private participation from the oil well to the private vehicle, or as they say in the US, from the well to the wheel. The change is total, and it will change not only the energy sector, but rather the entire economic order of the country.” The fact that the state-owned oil company’s profits go into the federal budget, representing about 40 percent of the state’s total income and 70 percent of the total national budget, is generally skirted in the media. The longer-term consequences of privatizing Pemex, and removing the corresponding revenue stream from the budget, would be akin to implementing a severe austerity program, creating a massive shock for the country’s working poor. In addition to the loss of profits, collecting what would be relatively high taxes for companies to operate in Mexico could pose a problem. “The government of Mexico has historically not been a good tax collector.… It is highly questionable whether it can, or whether there is a fatal level of corruption,” said Grunstein. “If Mexico doesn’t manage to maintain its share of tax revenues, there will be a coup d’état” sometime in
the next fifteen years, she predicted. In Venezuela, private participation in the state oil company was permitted in 1993, and in 1998, Hugo Chávez Frias, an openly socialist candidate, won the presidency. Should Mexico similarly mismanage oil revenues and move sharply to the left, the militarization and the expansion of the prison system in Mexico, which has taken place in lockstep with the drug war, could eventually be used in controlling dissent.
In addition to the opening up of Pemex, the Federal Electricity Commission (CFE) was gutted as part of the energy reform. The CFE held a monopoly over electricity generation and distribution in Mexico since 1937, and historically operated at a loss while providing many in Mexico with subsidized electricity. There were protests against dams and high tariffs in some areas, but the extreme tensions that exist in private energy markets were largely avoided (for example, the 2012 protests and massacre in Totonicapán, Guatemala, which were partly motivated by higher energy prices). The CFE’s monopoly was swiftly undone with the December 2013 reforms. “The CFE will undergo a very important change, and I actually think it will be weakened more rapidly than Pemex, in the sense that there will be a competitive market for [electricity] generation, and the possibility of bilateral contracts directly with industrial users,” said Grunstein. For mining and other energy-intensive industries to be able to harness their own energy source will surely be a boon to investment. It could also create lucrative side businesses for transnational corporations, which—to encourage investment—other jurisdictions (like British Columbia, Canada) allow to sell surplus energy generated from state-subsidized dams back to the government buyer at market rates.